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Uranium Week: Big Gains For Uranium Equities

Weekly Reports | May 11 2021

This story features PALADIN ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: PDN

As the uranium spot price rose 3.8% for the week, share prices of current and prospective uranium producers rose solidly

-Uranium equities outperform most indices
-Cameco and Kazatomprom production reports
-Uranium spot price rise by 3.8% for the week

By Mark Woodruff

Share prices of current and prospective uranium producers rose solidly last week. A contributing factor was the announcement by Sprott Asset Management and physical uranium investment vehicle Uranium Participation Corporation (UPC) of an agreement to modernise the UPC business structure and pursue a US listing. For further detail refer to last week’s article: https://www.fnarena.com/index.php/2021/05/04/uranium-week-new-uranium-investment-vehicle/

Investment managers Shaw and Partners believe the importance of this announcement cannot be overstated. A US listing of UPC under Sprott may provide the investment vehicle with access to more capital and be linked to additional purchases of uranium in the spot market.

Those additional purchases may put pressure on spot prices and cause an increase in term contract pricing. In addition, it potentially establishes a mechanism for daily commodity price discovery by speculators, explains Shaw.

In further news, UPC announced last week an upsizing by around $US16m of the previously announced US$40.67m underwritten offer. The funds will be be directed towards additional uranium spot purchases.

Some share price rises last week for uranium companies covered by Shaw and Partners were Paladin ((PDN)) up by 25.6%, Vimy Resources ((VMY)) 12.5%, Peninsula Energy ((PEN)) 32.0%, Lotus Resources ((LOT)) 48.1%, Bannerman Resources ((BMN)) 32.1% and Boss Energy ((BOE)), which climbed 26.7%.

Company News

In production news, both Cameco Corporation and Kazatomprom released first quarter operating results last week.

Canada's Cameco reported a marginal net loss of -US$4.1m for the first quarter, as revenues fell -16% compared to the first quarter of 2020. The company recorded no uranium production during the quarter while Cigar Lake operations were temporarily suspended.

First quarter results were driven by normal quarterly variations in contract deliveries, explains industry consultant TradeTech. The latest reporting period was also impacted by additional care & maintenance costs of -US$27m. This resulted from the proactive covid-related-suspension of production in December 2020 at the Cigar Lake Mine, for about four months.

Despite this the company ended the quarter with over a billion dollars in cash and was successful in adding 9mlbs U3O8 to the long-term contract portfolio.

Cameco recorded sales of 5mlbs U3O8, at an average realised price of US$32.25/lb which was down -17% compared to the same quarter last year.

The company has increased the outlook for purchasing uranium this year to meet its delivery commitments and to maintain a working inventory. It now expects to acquire 11-13mlbs of uranium this year, compared with previous plans to purchase 8-10mlbs, with additional purchases possible, depending on Cigar Lake operating rates and covid-19 uncertainties.

Kazakh uranium producer Kazatomprom reported production of 12.8mlbs for the first quarter, 7.3mlbs on an attributable basis, down -6% compared to the same period last year. This was due mainly to the company’s decreased wellfield development activity and lower staff levels throughout the second quarter of 2020.

Group sales volume totalled 3.3mlbs for the first quarter, at an average realised price of US$29.71/lb, which was -16% lower than the first quarter of 2020. This was primarily due to the timing of customer-scheduled deliveries. Production volume in 2021 is expected to be 58.5-59.3mlbs on a 100% basis, and 32.6-33.3mlbs on an attributable basis.

Although first quarter production was lower year-over-year, due to the impact of lower wellfield development in the second quarter of 2020, Kazatomprom expects production rates to recover in the second half of 2021. 

Nuclear Waste

The world’s first repository for used fuel is expected to begin operations in the mid-2020’s. Excavation of the first final disposal tunnel has started at the Onkalo underground used nuclear fuel repository in Finland.

It’s is estimated that 100 deposition tunnels will be excavated during the 100-year operational period of the final disposal facility, and will have a total length of about 35 kilometres. Used nuclear fuel will be placed in the bedrock at a depth of about 450 metres.

The excavation of the first five tunnels is part of Finnish radioactive waste management company Posiva Oy approximately US$607m EKA project that covers all the final disposal facilities needed.

Posiva's plan is for used fuel to be packed inside copper and steel canisters at an above-ground encapsulation plant. About 30 canisters will be placed in each tunnel. A similar repository is planned at Forsmark in Sweden.

Uranium pricing 

TradeTech's Weekly Spot Price Indicator closed the week at $30.25/lb, up US$1.10 from last week.

While the spot price has risen over 9% in the last two months, gaining an average of nearly 1% per week, the Spot Price Indicator is down -0.5% in 2021. The average Weekly Spot Price Indicator in 2021 is US$29.42/lb, US$0.29 below the 2020 average.

A total of approximately 1.6mlbs U3O8 equivalent traded hands over the course of the week, primarily to trader and financial entity buyers. The bulk of the volume picked up this week was purchased early in the week, following the news that both Uranium Royalty Corporation (URC) and Uranium Participation Corporation had raised additional funds that would be directed towards additional uranium spot purchases.

Additionally, spot prices rose on reports the White House has signalled privately to lawmakers and stakeholders in recent weeks that it supports taxpayer subsidies to keep existing nuclear facilities from closing. This would be in recognition that it needs these plants to meet US climate goals, explains TradeTech.

TradeTech's term price indicators are US$30/lb (mid) and US$35/lb (long). 

One element reshaping both the spot and term markets is increased buying by the production sector. In March, producers moved into the spot market to buy uranium, which led traders, end-users, and other entities to follow suit. Buying by prospective producers presents a new avenue for project financing, while the loss of legacy contracts places greater pressure on existing producers. For now, both existing and prospective producers are utilising spot purchases dispatched into future deliveries as means to provide revenue for operations until the market improves and term contracting activity picks up.

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CHARTS

BMN BOE LOT PDN PEN VMY

For more info SHARE ANALYSIS: BMN - BANNERMAN ENERGY LIMITED

For more info SHARE ANALYSIS: BOE - BOSS ENERGY LIMITED

For more info SHARE ANALYSIS: LOT - LOTUS RESOURCES LIMITED

For more info SHARE ANALYSIS: PDN - PALADIN ENERGY LIMITED

For more info SHARE ANALYSIS: PEN - PENINSULA ENERGY LIMITED

For more info SHARE ANALYSIS: VMY - VIMY RESOURCES LIMITED